The CEO of High Tech International decides to change an accounting met

The CEO of High Tech International decides to change an accounting method at the end of the
current year. The change results in reported profits increasing by 5%, but the company’s cash flows
are not changed.

If capital markets are efficient, then
A) the stock price will increase only if the accounting change will also result in higher profits in
the next year.
B) the stock price will not be affected by the accounting change.
C) the stock price will decrease because accounting method changes are not permitted under
generally accepted accounting principles.
D) the stock price will increase due to higher profits.

ANSWER

B